Which of the Following Is Not True About Recognizing Unrealized

question 172

Multiple Choice

Which of the following is not true about recognizing unrealized gains and losses on equity investments?

• A)If the investor does not have significant influence over the investee, the equity investment is always accounted for as FV-NI.
• B)The investor can use the FV-OCI approach if the equity is held for purposes of maximizing return on investment or managing risk.
• C)The investor will recognize unrealized gains and losses in earnings in the period in which fair value of the investment changes.
• D)If the investor has significant influence but not control over the investee, the equity method is useD.Answer B applies to the FV-OCI method for debt investments, not equity investments.

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Definitions:

Minimum Efficient Scale

The smallest production quantity at which the long-run, total average cost is minimized.

Economies of Scale

Refers to the cost advantage that arises with increased output of a product, leading to a reduction in the per-unit cost.

Production Process

A sequence of steps or operations involved in the manufacture of goods or the delivery of services.

Minimum Efficient Scale

The smallest scale of production a firm can achieve while still taking full advantage of economies of scale.